Preparing for a Recession and a Recovery
The World Economic Forum in Davos wrapped last week with the usual fanfare, including fascinating perspectives and novel conspiracy theories. Top of mind for everyone was the state of the economy in light of potential economic downturns across the globe.
New research from the Chief Economists Outlook gives us a sense of the headwinds ahead:
• 100% of chief economists surveyed expect geopolitical fault lines to continue realigning global economic activity (when have you seen 100% of economists agree on anything?) and 63% expect a global recession in 2023.
• Factors expected to have significant drag on business activity in 2023 include weak demand (91%) and the high cost of borrowing (87%).
• Expected business response to potential economic headwinds in 2023 include reducing costs by cutting operational expenses (86%), reducing costs by laying off workers (78%), and optimizing supply chains (77%).
Worker layoffs are happening across all sectors. In January alone, we began seeing significant layoffs in the tech sector. Microsoft’s Satya Nadella said that the layoffs “are the kinds of hard choices we have made throughout our 47-year history to remain a consequential company in this industry that is unforgiving to anyone who doesn’t adapt to platform shifts.” Google’s Sundar Pichai said of his company’s layoffs, “These are important moments to sharpen our focus, re-engineer our cost base, and direct our talent and capital to our highest priorities. Being constrained in some areas allows us to bet big on others.”
I was talking about the economy with some financial services clients over dinner last week – and I thought of Sundar’s point about betting big. When I was asked what I would do about 2023, I suggested that we should look ahead to and prepare for 2024. Sure, we have to be vigilant about all of the short-term challenges that we will likely face in 2023. But this should be the time when we are also positioning ourselves for recovery.
With zero exception, every one of our clients who continued investing in marketing communications during the Great Recession recovered faster than those who gutted their marketing spend. That’s what positioning ourselves for recovery looks like: making some big bets here and there.
Ira Kalish, Chief Global Economist at Deloitte Touche Tohmatsu, is one of the economists surveyed as part of the World Economic Forum. “In my work, executives and many clients ask how they should prepare for a recession,” he said. “My answer is that they ought to prepare for recovery. A recession might last nine months, but a recovery could last nine years. Many companies have strong balance sheets and can withstand a recession. Yet, when the recovery ultimately comes, they will need sufficient labour and technology to be competitive in a new post-pandemic environment.”
I would also submit that in addition to “sufficient labour and technology,” companies will also need strong brands in order to be competitive and win.
Written by Chris Ray, CEO of Ramey